Transcript Lesson 2 Are Commodities Back?

Lesson 2
Are Commodities Back?
I．Teaching Points:
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1. the direct investment and indirect investment
2. panel discussion
3. the viewpoints of the four investment experts on
“Are Commodities Back?”
4. the terms: the consumer economy, hedging
benefit, investment portfolio
5. the difficult sentences in the text
II. Teaching Aim:
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1. understand the differences between the direct
investment and indirect investment
2. understand what the panel discussion is
3. understand the viewpoints of the four
investment experts on “Are Commodities Back?”
4. understand the terms in the text
5. understand the difficult sentences in the text
III. Teaching Process
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1. Introduction to the Text
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1). The classification of investment: direct
investment and indirect investment.
2). What does the title mean? ------"commodities"
here refers to "commodities as the investment
target, to invest in commodities, that is, the direct
investment" , so the title just means" Can we still
invest in commodities in 1995?", "Are
commodities a good investment again?" or, "Can
we still make direct investment in 1995?".
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3). Understand the term "commodity" (Note 1), "futures"
(Note 4), and "hedging" (Note 5).
4). This text is a Panel Discussion (专人之主题讨论), the
interviewer is U.S. News assistant managing editor Jack
Egan, and the four guests are the four investment experts:
Strongin, Masters, Clough, and Markman. Jack Egan
hosted this panel discussion, and the four investment
experts express their different views on "Are commodities
back?", and we should try to find their different views on
direct investment in 1995 and try to understand the reasons
why they held these different views.
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5). The general question " Are Commodities Back?" is subdivided into three
interrelated questions.
①. Is it wise to make long-term investment in commodities?
Strongin thinks it is. Why so? (P.14)
②. Are commodities a good investment for the year of 1995?
Masters fells they are. Why so? (P. 14)
Clough holds it is best to buy stocks and bonds of commodity producers,
Why? What problems does he see in investing in commodities? (P.15)
Strongin thinks it is better to combine commodities with stocks and bonds.
(PP. 15-16)
Markman thinks financial assets are going to be the main beneficiaries.
(P.16)
③. Is inflation going to be a problem in 1995?
Strongin only talks about the necessity for rises in commodity
prices.(P.17)
Masters doesn't think there is an inflation. But there might be such a
danger. (P. 17)
Clough thinks there is no major inflation cycle, though prices will go up
to a higher level. (P.17)
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2. Reading for gist
Read the text with about 15 minutes, and then try to answer
the following questions:
1. Does Strongin think it is wise to make long term
investments in commodities? Why (not)?
2. What makes Masters feel commodities remain a good
investment for next year?
3. What problem does Clough see in investing in commodities?
4. Why does Clough think the best investment is to buy stocks
and bonds of commodity producers?
5. Strongin holds it is better to combine investments in
commodities and bonds. Why?
6. What makes Markman think financial assets are going to be
the main beneficiaries?
7．What kinds of stocks does Markman favor to buy? Why?
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3. Detailed Study of the Text
In a recent panel discussion hosted by
U.S. News assistant managing editor Jack
Egan, four investment experts consider
whether hard assets (Note 2) are the place to
be (are their right place to be, are the fields
we can invest in ).
Egan: What’s the long-term case
( situation) for commodities, Steve (Steve
Strongin)?
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Strongin: The reindustrialisation of Europe and the growth of
the consumer economy (Note 3) in the United States powered
(propeled) the world economy after World War II; today, the
development of the emerging economies (the economies of the
newly emerging counties) is duplicating (repeating) that
experience (process, history). We’re talking about 15,20,30 years’
worth (value, achievement, accomplishment) of
industrialisation—new power grids(高压输电网), roads,
factories—across South America, Southeast Asia, China, Eastern
Europe. With that kind of driving growth (rapid growth) comes far
greater use of resources, sharply rising incomes and large
increases in consumption of food, of apparel (clothes), of metals
and so forth. //
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Egan: Is the climb (increase) in prices still in its
early stages, or will prices level off (reach a level
and then remain it) in 1995?
Masters: There is still lots of room for commodity
prices to go higher, in my view. We don’t do official
price forecasts at J.P. Morgan (a forum for
international economy), but I expect there could be
another rise in industrial-commodities prices in 1995
on the order of (AmE, somewhat like, similar to,
echo back to the call / order of ) last year’s gain.
Egan: So you feel commodities remain a good
investment for next year?
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Masters: Emphatically (definitely, absolutely, completely) so, both in
absolute terms and relative (terms) to stocks and bonds (both in terms
of the value of commodities themselves and in terms of their values
compared with those of stocks and bonds).
Clough: I’m not so sure. A year ago commodities would have definitely
looked best from a relative-value standpoint (the viewpoint above--Masters) because prices were so depressed. But we’ve had some
pretty good rallies (a rise following a drop in prices) since then, and
most of the price disparity (differences) between commodities and
financial assets has disappeared. Some commodity prices have risen
so much, in fact, they’re beginning to look risky. Aluminium, for example,
is up 70% from its lows. Meanwhile, some financial assets have been
so battered (hit hard, here means its price is rather low) that they are
beginning seem attractive. In terms of values, I’d be looking hardest at
(would be looking hardest at, look best at, I'd be keeping a close eyes
on bonds) bonds, now that (bonds) long-term rates are around 8%.
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Egan: Chunk (Chunk Clough), are you saying individual
investors should avoid commodities?
Clough: It’s not that (case) I think (the prices of) hard assets
have no more potential to go up. But it’s difficult for most
individuals to invest directly in commodities. Futures are too risky.
The best way for someone to participate in (join) any surge of
global demand (any great increase in world demand) might be to
buy the stocks of commodity producers.
Strongin: The problem with that approach is that an investor
won’t get the same hedging benefit (Note 5) from buying stocks
as from investing in the actual commodities.
Egan: Could you explain?
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Strongin: Commodities and financial assets like stocks and bonds
tend to offset each other (to balance / compensate each other) . By
combining them (commodities investment and financial assets
investment ) in an investment portfolio (investment mix, 投资总额, 投资
组合, See Note 6), you reduce risk in difficult markets (market full of
fierce competition) through diversification (through the diversification of
investment, through the combination of various kinds of investment to
avoid risks; through the combination of commodities investment and
financial assets investment to avoid losing money). This past year
provides (gives) an excellent example (a good / perfect example). While
a strengthening (developing, price-rising) economy (the economy that
develops fast / that produces great demands of commodities which in
turn leads to the increase of commodities' prices, and in this case,
investment in commodities is attractive) has increased demand for
commodities, it also has caused (led to) interest rates to climb (to
increase. Here, Reasons: If one country's national economy develops
too fast, even to a stage of over-heated economy, then this fastdeveloping-economy will hurt the healthy development of its economy.
Then there will be some macro-regulation measures to intervene the
development of economy. These measures include the increase of
interests rates to prevent too much hard assets investment.), which hurt
bonds and made equities less attractive (in this situation, more people
wanted to put their money in the banks to get bank interests instead of
buying stocks to get dividends, or less people wanted to borrow money
from banks to buy stocks).
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That includes shares of many natural resource companies
(strengthening economy → increase of demands for
commodities → increase of the commodities' prices →
increase of commodities investment / direct investment →→
increase of interest rates → decrease of the purchase of
stocks → decrease of the purchase of the stocks of "many
natural resources companies"/ commodities-investing
companies→ in turn, this will influence the development of
commodities investment / direct investment------the meaning
of the word "offset" in the first sentences).
Egan: Bob, where do you stand (what's your standpoint?)?
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Markman: I also see a dynamic, global economic expansion (prosperity,
development) over the next five to 10 years, but I think financial assets—mainly
stocks—are going to be the main beneficiaries (n. One that receives a benefit,
受益人. Some phrases with the word "beneficiary": final beneficiary 最终受益人;n
first beneficiary 第一受益人; immediate beneficiary 直接受益人; original
beneficiary 原受益人; young-generation beneficiary下一代的受益人). By
comparison, commodity price changes are going to seem like mere blips (to
seem to be very small. Blips: tiny spots of light as found on a rada screen).
What’s being overlooked (overlook: to be not noticed) is the ability of increasing
productivity to counteract (to act against, to make less) concerns (worries) about
inflation (This sentence means: Increasing productivity will make people less
worried about inflation). Continued advances in technology (this increases
productivity. Increased productivity leads to more output at lower production
costs, and finally lower selling prices of products) and the unleashing of one
third of the world’s population (the release of the population from the control of
central-planned economy. This suggests that there is a large supply of cheap
labor, which will not only lower labor cost but also increase job competition.) that
was previously under socialist or communist economic domination (under
domination: under control of...) will dampen (reduce) price and wage pressures
(will dampen price and wage pressures: will reduce pressures from rising
prices and pressures from demand for wage increase from workers in
western countries). I therefore question whether global growth will necessarily
lead to a continued sharp rise in commodity prices. Back in the early’80s, every
forecaster was talking about the inevitability (the things must happen in future)
of oil prices going to $100 a barrel. What happened instead is that we
discovered a lot more oil and the price fell.
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Egan: Given your scenario (suppose things are like what you
describe. scenario: the outline of a play, an opera, or a film,
giving the main facts about the scenes), what kinds of
investments do you favor (support / prefer / like better)?
Markman: I’m looking at companies such as telecommunications
firms that are helping to build the infrastructure (see note 7) in
the emerging markets (newly-born markets). There’s the
Montgomery Global Communications Fund, for example, which
I’m buying for my clients. About a third of its portfolio (bonds,
stocks, securities) is in the emerging markets, a third is in the
developed international markets and a third of its portfolio is in
the United States. So it’s well diversified both within the
telecommunications sector and geographically.
Egan: Is technological innovation going to limit the rise in
commodity prices, Steve?
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Strongin: It’s more a question of what incentives are required to
bring forth needed supplies of raw materials. Without significant
commodity price appreciation (rise in prices. appreciation:
increase in value of currency, land, goods, etc. . the opposite
word is depreciation), the great returns (returns on investment,
income gained from investment) Bob talks about getting from
investing in the emerging markets won’t be there. Take the case
of energy. It seems clear that foreign companies will not invest in
developing the oil fields (油田) in the Pacific Rim nations (nations
surrounding the Pacific Ocean) unless they can expect to
generate returns (returns on investment, income gained from
investment,投资回报) to justify doing so (to prove it is right to do
so). //
Egan: If commodity prices continue to rise, does that mean
inflation at some point becomes a problem?
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Masters： We're really not there (in that situation) yet. Recent
statistics indicate that both here in the United States and in the
rest of the world, we're experiencing strong and rising growth
without any significant inflationary pressures. But there is a
school of thought—and we believe it's quite credible (a way of
thinking shared by a group of scholars（学派）, which is
believable)—that says inflation will be at some point (time /
situations / degree) a natural consequence of the buoyancy in
the global economy (the growth of the world economy. buoyancy:
the power to float or keep things floating, and here means "the
continued economic growth"). And once an inflationary
psychology gets going (when people have the feeling that
inflation will occur, ------and then it may occur.), that will drive
commodity prices even higher.
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Egan: Chunk, you said earlier that investors should look at
bonds (consider to make investment in). You must not think (你肯
定不会认为...) inflation is going to be a problem next year.
Clough: I don't think we face a major inflation cycle during this
expansion. The government's producer price index (see note 8),
which is around 1 % currently, might rise to 4% annual rate, but
then it will back right down (back down: lower, decrease). The
consumer price index (see note 8), now running at around 2.7%,
will probably peak at between 3.5% and 4%, but again won't stay
there very long. And I'm guessing we might be very, very close to
both of those highs (high points), perhaps seeing them in the first
Part of 1995.
Egan: Let’s agree to disagree.
Homework
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1. Exercise II, V.
2. Oral Work: Five students as one group, one
student is the interviewer---Egan, and the other
four are the investment experts---Strongin,
Masters, Clough, and Markman, and then act this
panel discussion out.